I'm pretty sure that once the < AAA ratings become fact the first response is to suspend the large pool investment rules that require triple-A in the first place.
Actually, I've been hearing that for a while, that a downgrade to AA would not be that big a deal. Someone suggested banks should be given some leeway by regulators on that score.
I think no one really knows what the ramifications of a AA rating would be, but those advocating it seem to be saying that the advantage would be it would (hopefully) put a lid on the fears of the great unknown.
I have a friend that was one of the former "regulars" that showed up at these auctions. Like the others, he now has an unloadable inventory...and money flying out every month. Tried to catch the falling knife and missed.
I actually don't think AA should be a huge deal in the case of a wrap. If you consider a muni-issuer and an insurer to have a pairwise default correlation of somewhat
I'm amazed at how short sighted people on wall street are. They're so concerned about maintaining the AAA rating that they ignore the real issue. The bankruptcy of the monoline insurers. If they can't pay claims, it doesn't matter what their credit rating is.
A lot of what led to this mess was the focus on appearance. They should be focusing on fundamentals.
Interestingly the banks are beginning to admit publicly the decline in rating for the insurers, which they knew for months privately. Does it mean that they are taking the first steps to prepare public for more writedowns? Perhaps the barrage of confessions will coincide with another Fed rate cut or some such lame measure, as is the case usually ...
heads up guys. the dow and s&p have broken the sideways triangle downward this AM thats been forming over the last few wks. many technical analysts have been waiting for resolution of this fascinating formation. look out.
BOB IN MA: "I think no one really knows what the ramifications of a AA rating would be, but those advocating it seem to be saying that the advantage would be it would (hopefully) put a lid on the fears of the great unknown."
The outcome if the monolines were to stay at an AA rating is mostly predictable (it's not as foggy as the split strategy or the run-off strategy).
For those that own muni bonds, the bond rating will be downgraded to AA (or stays at AAA if underlying rating is AAA). Some who can't hold below AAA will have to sell the bonds or change their regulations requiring them to hold only AAA... for structured products, the AA won't have much impact. Banks may have to write off some amount but they won't take much of a hit since AA still means fairly high probability of payment on their insurance.
From a shareholder poitn of view, operating at AA means that the core businss will dissapear. Operating at AA means that capital infusions may not be required (at least not anything significant). It will avoid all the legal uncertainty. The affect monoline will have to sell off is muni bond business (since its business will be tiny without AAA).
Basically all this comes down to trading off one side for another. An AA strategy hurts munis but helps structured side (in contrast, trying to keep AAA helps munis but may hurt structured product holders (depending on the details)).
Interesting short article. Says that the index rise may be from non-US economies decoupling, or from Chinese snowstorms.
If the former is true, the rise in the index confirms a US recession, but isolates the US from the rest of the world. (Meaning, the US will experience the worst of the downturn.)
This falls in line with Peter Schiff saying the Chinese could ship straight to Canada, rather than ship to the US so Canadians can come over the border to go shopping.
ref Charlie, what difference does it make what the ratings are if they can't pay the claims?
Ratings now mean nothing, Calpers or anybody can change their ratings system, but the fact remains the monolines don't have the reserves to pay a fraction of the possible claims.
charlie: "I'm amazed at how short sighted people on wall street are. They're so concerned about maintaining the AAA rating that they ignore the real issue. The bankruptcy of the monoline insurers. If they can't pay claims, it doesn't matter what their credit rating is."
Except for you and a few superbears, no one can concretely argue that the monolines can't pay their claims? What's your basis for saying that their claims-paying ability isn't enough? Enough a superbear like Bill Ackman initially had MBIA and Ambac taking around $10b to $15b in losses versus their claims-paying ability close to that amount (however, I will concede that the losses will mostly be on the structured product side while the claims paying ability also needs to cover the muni bond side).
The monolines abilty to pay claims is an unknown. In this environment, risk adverse investors are pulling back, and the monolines cannot raise sufficient capital to make investors, regulators and rating agencies comfortable. The only viable solution is to BK the monolines and sell off the muni business to the highest bidder (Buffet?). Let the current shareholders and management retain the CDO insurance business with the capital remaining and the proceeds of the muni business sales. Regulators should get this done so the market can move on to other issues.
"The monolines abilty to pay claims is an unknown. In this environment, risk adverse investors are pulling back, and the monolines cannot raise sufficient capital to make investors, regulators and rating agencies comfortable."
"Oliver Q. writes:
Good point, Rob. If Calpers is limited to AAA investments, watch for a new law in the California state legislature that lowers the rating requirement.
Oliver Q. | 02.22.08 - 11:11 am | #"
I would like someone to produce some evidence that Calpers is limited to AAA investments.
That would mean NO stocks. There are essentially no AAA corporates. The handfull of AAA's have AAA because they don't borrow.
Needless to say, Calpers owns stocks. They are moving into 'alternative asset classes' and I don't know of any rated hedge funds.
If you are talking investment grade, then there are a lot of requirements for investment grade.
Pension funds own lots of stocks. For any specific company, a bond is a better credit then that company's common stock.
ZIGGURAT: "I would like someone to produce some evidence that Calpers is limited to AAA investments. That would mean NO stocks. There are essentially no AAA corporates. The handfull of AAA's have AAA because they don't borrow. Needless to say, Calpers owns stocks. They are moving into 'alternative asset classes' and I don't know of any rated hedge funds."
The whole quality limitation is dumb. I'm not sure if CALPERS has a limitation but some others do. It's generally made by some politician or someone who doesn't understand investing.
I recall Benjamin Graham (I think it was him) saying how insurance companies and pension funds were forced to hold something like only government bonds in the 40's. Government bonds were so overvalued and yielding around 1% while stocks had a yield of around 15%+ and benefitting from the post-war boom. (for what it's worth, rules were changed and those funds can now hold stocks)
ot sebastian writes:
"The monolines abilty to pay claims is an unknown. In this environment, risk adverse investors are pulling back, and the monolines cannot raise sufficient capital to make investors, regulators and rating agencies comfortable." Sivaram is still comfortable..."
yeah... now only if I can pony up a few billion... first I need to find a few billion somehow...
Oliver - "This falls in line with Peter Schiff saying the Chinese could ship straight to Canada, rather than ship to the US so Canadians can come over the border to go shopping."
Sure LOL! If the US gets a sniffle Canada gets pneumonia.
I'm pretty sure that once the < AAA ratings become fact the first response is to suspend the large pool investment rules that require triple-A in the first place.
That's an interesting thought Rob.
Suspend or freeze, for already held assets.
Actually, I've been hearing that for a while, that a downgrade to AA would not be that big a deal. Someone suggested banks should be given some leeway by regulators on that score.
I think no one really knows what the ramifications of a AA rating would be, but those advocating it seem to be saying that the advantage would be it would (hopefully) put a lid on the fears of the great unknown.
CR- Check this out from the Wash Post...
Foreclosure Auctioneer's Lonely Task - washingtonpost.com
Foreclosure investors seem to have given up.
I have a friend that was one of the former "regulars" that showed up at these auctions. Like the others, he now has an unloadable inventory...and money flying out every month. Tried to catch the falling knife and missed.
keep in mind the issue gets clouded to aloud time to off load this on somebody else (foreigners??)...so when will the truth come out??
Ridiculous. Why not just make the AA guidelines the new AAA guidelines, then? We're all AAA now!
Good point, Rob. If Calpers is limited to AAA investments, watch for a new law in the California state legislature that lowers the rating requirement.
I actually don't think AA should be a huge deal in the case of a wrap. If you consider a muni-issuer and an insurer to have a pairwise default correlation of somewhat
Fall back, Fall Back. We've prepared a new line of defence, we'll hold 'em at the new AA line.
I'm amazed at how short sighted people on wall street are. They're so concerned about maintaining the AAA rating that they ignore the real issue. The bankruptcy of the monoline insurers. If they can't pay claims, it doesn't matter what their credit rating is.
A lot of what led to this mess was the focus on appearance. They should be focusing on fundamentals.
See it will all be contained at AA...yeah that's the ticket!
Interestingly the banks are beginning to admit publicly the decline in rating for the insurers, which they knew for months privately. Does it mean that they are taking the first steps to prepare public for more writedowns? Perhaps the barrage of confessions will coincide with another Fed rate cut or some such lame measure, as is the case usually ...
He caught it, X, hence all the bleeding
OT literary suggestion for all CR readers:
You Can't Go Home Again
by Thomas Wolfe.
I'm less than a hundred pages in but it's a great read so far, and the depression era setting (and real estate bubble) resonates.
heads up guys. the dow and s&p have broken the sideways triangle downward this AM thats been forming over the last few wks. many technical analysts have been waiting for resolution of this fascinating formation. look out.
apart from Letter soup , wouldnrt changing the rules tank trust in the system complet???
Since you are a debtor nation and depend on other countrys to provide you with money???
Exactly, Rob Dawg... why use money when you could do it with talk?
Gary writes:
He caught it, X, hence all the bleeding..
I say he missed the catch and it stabbed him in the chest.
.. sort of like if we let the monolines go no-doc, is it not?
Nasdaq has also broken triangle downward.
Ratings drive bank capital if they have adopted Basle II.
Monolines stabilized at AA? But they're not AA. Just another time waste.
You can call the monolines XYZ if you want. They are still WAY undercapitalized for the coming storm of defaults.
Still bailing water on the Titanic with a spoon.
BOB IN MA: "I think no one really knows what the ramifications of a AA rating would be, but those advocating it seem to be saying that the advantage would be it would (hopefully) put a lid on the fears of the great unknown."
The outcome if the monolines were to stay at an AA rating is mostly predictable (it's not as foggy as the split strategy or the run-off strategy).
For those that own muni bonds, the bond rating will be downgraded to AA (or stays at AAA if underlying rating is AAA). Some who can't hold below AAA will have to sell the bonds or change their regulations requiring them to hold only AAA... for structured products, the AA won't have much impact. Banks may have to write off some amount but they won't take much of a hit since AA still means fairly high probability of payment on their insurance.
From a shareholder poitn of view, operating at AA means that the core businss will dissapear. Operating at AA means that capital infusions may not be required (at least not anything significant). It will avoid all the legal uncertainty. The affect monoline will have to sell off is muni bond business (since its business will be tiny without AAA).
Basically all this comes down to trading off one side for another. An AA strategy hurts munis but helps structured side (in contrast, trying to keep AAA helps munis but may hurt structured product holders (depending on the details)).
Off-Topic:
Baltic Dry Index moving back up, 25% since end of January.
An 'Antibubble' - WSJ.com
Interesting short article. Says that the index rise may be from non-US economies decoupling, or from Chinese snowstorms.
If the former is true, the rise in the index confirms a US recession, but isolates the US from the rest of the world. (Meaning, the US will experience the worst of the downturn.)
This falls in line with Peter Schiff saying the Chinese could ship straight to Canada, rather than ship to the US so Canadians can come over the border to go shopping.
well you can allways give the land back to the natives, charge a 150 year maintanance fee and walk to greener pasture...... (snark)
yeah, it doesn't matter at AA. investors already have pulled back as evidenced in the ARS mkt. the momentum is going in the wrong direction.
Market triangles?
My ouija board and divining rod tell me things are O.K.
That's weird.
ref Charlie, what difference does it make what the ratings are if they can't pay the claims?
Ratings now mean nothing, Calpers or anybody can change their ratings system, but the fact remains the monolines don't have the reserves to pay a fraction of the possible claims.
Kp,
Ya didn't check the magic 8 ball! Doh!
Off topic:
good read in these times...
Amazon.com: To Have or to Be? (9780826417381): Erich Fromm: Books
charlie: "I'm amazed at how short sighted people on wall street are. They're so concerned about maintaining the AAA rating that they ignore the real issue. The bankruptcy of the monoline insurers. If they can't pay claims, it doesn't matter what their credit rating is."
Except for you and a few superbears, no one can concretely argue that the monolines can't pay their claims? What's your basis for saying that their claims-paying ability isn't enough? Enough a superbear like Bill Ackman initially had MBIA and Ambac taking around $10b to $15b in losses versus their claims-paying ability close to that amount (however, I will concede that the losses will mostly be on the structured product side while the claims paying ability also needs to cover the muni bond side).
triangles are my version of conjure bags
better invest in linguistics... euphism are booming....
BofA suggest stabilizing at AA. That means they know they will downgraded below that under present conditions.
Cheers,
The monolines abilty to pay claims is an unknown. In this environment, risk adverse investors are pulling back, and the monolines cannot raise sufficient capital to make investors, regulators and rating agencies comfortable. The only viable solution is to BK the monolines and sell off the muni business to the highest bidder (Buffet?). Let the current shareholders and management retain the CDO insurance business with the capital remaining and the proceeds of the muni business sales. Regulators should get this done so the market can move on to other issues.
"The monolines abilty to pay claims is an unknown. In this environment, risk adverse investors are pulling back, and the monolines cannot raise sufficient capital to make investors, regulators and rating agencies comfortable."
Sivaram is still comfortable
I'm in AA, and I say its the first step.
Dearth of foreclosure buyers is step one on the road to recovery.
Only 11 more to go...
ice try at pump and dump of BSC on rumors of BAC buyout of UBS. too bad i raped em.
this is an example of why i hate Wall St. I feel sorry for the average investor who gets screwed by these pump monkeys.
ignore the triangles at your own peril!
indices going further and further below the triangle. sell, sell, sell.
idoc,
give me 500,000 shares of good ol USA at $.01 per please...
Oh and you do take Euro's?
"Oliver Q. writes:
Good point, Rob. If Calpers is limited to AAA investments, watch for a new law in the California state legislature that lowers the rating requirement.
Oliver Q. | 02.22.08 - 11:11 am | #"
I would like someone to produce some evidence that Calpers is limited to AAA investments.
That would mean NO stocks. There are essentially no AAA corporates. The handfull of AAA's have AAA because they don't borrow.
Needless to say, Calpers owns stocks. They are moving into 'alternative asset classes' and I don't know of any rated hedge funds.
If you are talking investment grade, then there are a lot of requirements for investment grade.
Pension funds own lots of stocks. For any specific company, a bond is a better credit then that company's common stock.
Down 110 points? No worries, the PPT will put a quarter in the pump-o-bot and all will be well.
Failing that, we always know Ben the Blowup Doll has our backs. 50 bps, anyone?
ZIGGURAT: "I would like someone to produce some evidence that Calpers is limited to AAA investments. That would mean NO stocks. There are essentially no AAA corporates. The handfull of AAA's have AAA because they don't borrow. Needless to say, Calpers owns stocks. They are moving into 'alternative asset classes' and I don't know of any rated hedge funds."
The whole quality limitation is dumb. I'm not sure if CALPERS has a limitation but some others do. It's generally made by some politician or someone who doesn't understand investing.
I recall Benjamin Graham (I think it was him) saying how insurance companies and pension funds were forced to hold something like only government bonds in the 40's. Government bonds were so overvalued and yielding around 1% while stocks had a yield of around 15%+ and benefitting from the post-war boom. (for what it's worth, rules were changed and those funds can now hold stocks)
ot sebastian writes:
"The monolines abilty to pay claims is an unknown. In this environment, risk adverse investors are pulling back, and the monolines cannot raise sufficient capital to make investors, regulators and rating agencies comfortable." Sivaram is still comfortable..."
yeah... now only if I can pony up a few billion... first I need to find a few billion somehow...
Stabilizing them at AA seems about as likely as containing the problem to subprime IMHO: more wishful thinking than careful analysis.
Oliver - "This falls in line with Peter Schiff saying the Chinese could ship straight to Canada, rather than ship to the US so Canadians can come over the border to go shopping."
Sure LOL! If the US gets a sniffle Canada gets pneumonia.
Siv:
"The whole quality limitation is dumb. I'm not sure if CALPERS has a limitation but some others do."
This has been posted as a 'known fact' a number of times. It is a known fact that isn't true. How many more people will post this.
If anyone had posted the most benign bullish error it would be slammed and ridiculed immediately.
Rules for defined benefit plans are legislated by ERISA and when someone finds the regulation, please post it.